How to Refinance Your Home Rate

When interest rates are dropping, refinancing a home mortgage is a great way to save money. You may find that you can convert a 30-year mortgage to a 15-year mortgage and pay your home off sooner or drop the private mortgage insurance (PMI) for significant savings on your monthly payment. Depending on how long you have owned your home, you may even find that you can pull money out of your home if it appraises for more than what you owe. There are some pitfalls to the process, however, but knowing some things to watch out for can ensure that refinancing is the right thing to do.

• 1

  View current interest rates to see if they are at least 1 percent below what you are currently paying. If the current interest rate is not lower than 1 percent, there is no benefit in refinancing. If the current interest rate is 2 percent or lower than what you currently pay, however, you could have significant savings by refinancing.

• 2

  Read over your mortgage terms to see if you can refinance with your current lender. Some mortgage companies charge prepayment penalties, which could cost you money if you pay off the loan early. The terms of your mortgage agreement may also state that you have to wait a specific amount of time before you are eligible to refinance with your current lender.

• 3

  Check your credit score. A good credit score can help you qualify for the best rates. If you score is low (scores below 620 are considered subprime), raise your credit score by paying off some debt before you attempt to refinance.

• 4

  Contact your current lender to discuss a refinance. Although you may ultimately choose to use a different lender to get a better interest rate, start with your current mortgage provider since they will often cut fees or roll the closing costs into the new loan since you already have a mortgage with them.

• 5

  Compare the fees and annual percentage rate of the new loan to the old loan. If the total costs of the new loan are not less than the total savings in interest, it will not save you money to refinance. You may then wish to check with another lender, or wait until rates go even lower before you refinance.